Why is WeLab launching a digital bank in Indonesia?

Written by Kapronasia || November 27 2023

The market opportunity for digital banks in Hong Kong has always been open to interpretation, and their balance sheets (with a few exceptions) 4.5 years after the Hong Kong Monetary Authority (HKMA) announced it would allow online lenders reflects that reality. The Greater Bay Area could offer some additional opportunities, but like most of China, it has achieved a reasonably strong level of financial inclusion. For these reasons, as we observe Hong Kong-based WeLab launch a digital bank in Indonesia, we think that it has a more promising business strategy than some of its competitors. To be sure, Indonesia has increasing digital banking competition, but a large segment of the population remains unbanked and underbanked.

According to Global Findex, about half of Indonesia’s population of nearly 280 million is still unbanked, while millions of additional Indonesians are underbanked. It is the latter that We Lab appears focused on. Last week, WeLab and its Indonesian conglomerate partner Astra launched Bank Saqu, the rejigged version of the incumbent lender Bank Jasa Jakarta that two companies bought last year. With this approach to digital banking, WeLab and Astra are following what has almost become a standard operating procedure in Indonesia. Financial regulators are receptive to the acquisition of small incumbent banks by foreign tech companies as long as they have a local partner – usually a conglomerate. There is no need to apply for a banking license either – because the incumbent lender already has one that carries over when it is converted into a digital bank.  

WeLab and Astra want to distinguish themselves from their many competitors by targeting a young professional demographic they describe as “solopreneurs,” including small business owners, freelancers, and full-time employees with side hustles. A study commissioned by Bank Saqu estimates that one in three Indonesians, or some 117 million people, will have multiple side gigs by 2030. With that in mind, Bank Saqu permits customers to open up to 20 accounts to cater to different income streams, and plans to launch lending and fee-income products in 2024.

We like the prospects for Bank Saqu better that some of WeLab’s other endeavors. For instance, the digital bank has about 15,000 wealth management customers in Hong Kong and has long had an eye on providing similar products to the Greater Bay Area, but it is unclear if the regulatory environment in mainland China will allow that in the short or medium term. Additionally, it is cooperating with HSBC to co-develop digital banking products in Malaysia, but the Malaysian market is fairly mature.

In Hong Kong, WeLab Bank reported a loss of HK$161.5 million (U$20.7 million) during the first half of 2023, a modest improvement over a loss of HK$224 million a year ago, while its net interest income doubled. CEO Simon Loong seems to think that the digital bank will reach profitability in 2024 or 2025, but that remains to be seen. Most of the Hong Kong virtual banks are targeting a similar, rather small demographic with a suite of products that are not well differentiated.